Exemption to Small Taxpayers with annual turnover up to Rs 20 lakh / Rs 10 lakh

Need for Threshold Exemption to Small Tax Payers

It has been a state policy to exempt small taxpayers, who have a huge employment potential, to provide them a level playing field vis-à-vis the big and mighty enterprises with whom they have to compete in business. A large business house has a lower operational and production cost because of the volume of their production and business and lesser overheads (economy of scale), thus for the survival of the small units, they are given exemptions and other incentives. While large taxpayers are equipped with the resources and expertise required, thus small and tiny taxpayers are not in a position to follow the complexities of the law nor do they have resources to obtain services of experts for the same. Thus, for the survival of these small and tiny units threshold exemption has been notified by the Government. This exemption means that the units and the persons up to the annual turnover of Rs 20 lakh/ Rs 10 lakh would be outside the ambit of GST and would not be required to get registered.

New Threshold Turnover Limit for Small Taxpayers under GST
  • Under Central Excise law, the SSI exemption limit was Rs 1.5 crore, while in Service Tax, it was Rs 10 lakh. In the State VAT laws this limit varied from State to State but generally it ranged between Rs 5 lakh to 10 lakh.
  • However, under the GST, the CGST Act, has fixed threshold limit for exemption across goods and service at an aggregate annual turnover of Rs lakh (Rs 10 lakh for special category states of Assam, Jammu and Kashmir, Meghalaya, Arunachal Pradesh, Manipur, Mizoram, Sikkim, Tripura, Uttarakhand and Himachal Pradesh). This means the manufacturing sector which was availing exemption up to the annual turnover if Rs 1.5 crore would not be exempted only up to the annual turnover of Rs 20 lakh / Rs 10 lakh.
  • The threshold turnover limit for Small Taxpayers in the Union Territories is Rs 20 lakh.
Threshold Exemption to small taxpayers when not available
The benefit of threshold limit is not available to the following:
  • Person making any inter-state taxable supply.
  • Casual Taxable person.
  • Person who is required to pay tax under Reserve Charge
  • Non-resident taxable person.
  • A person required to deduct tax (e.g.-commerce business – marketplace)
  • The person supplying goods or service or both as an agent of any other person.
  • Input Service Distributor.
  • A person who supplies goods or services through e-commerce.
  • Every e-commerce operator
  • An aggregator who supplies services under his brand name.
Scope of threshold exemption to small taxpayers

In the newly introduced GST law, the threshold is a benchmark in terms of aggregate turnover, below which, subject to conditions, neither any GST would be leviable nor any procedural requirement relating to GST law, including registration, is required to be fulfilled. In other words, GST law in toto not applicable this benchmark. While for the purpose of registration, this benchmark has been specified in the CGST/SGST law, for the purpose of exemption, relevant notification issued by the Government has to be referred to.

Authority for threshold limit

The authority for fixing threshold limit is contained in newly inserted Article 279A (4)(d) of the Constitution of India which provides that the Goods and Services Tax Council shall make recommendations to the Union and the States on the threshold limit of turnover below which goods and services may be exempted from Goods and Service Tax.

How to compute aggregate Turnover of Rs 20 lakh / Rs 10 lakh

Term “aggregate turnover” has been defined in Section 2(6) of the Central GST Act, 2017 to mean as the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-state supplies of persons having the same permanent account number, t be computed on all India basis but excludes Central tax, State tax, Union Territory tax, integrated tax and Cess.
The value of following supplies shall be taken into account while computing the limit of Rs 20 lakh / Rs 10 lakh:

(a).Value of all taxable supplies excluding the value of inward supplies
(b).Value of exempted supplies
(c).Value of export goods or services or both
(d).Value of inter-State supplies of persons having same Permanent Account Number to be computed on all India basis

As per Section 2(6) of the CGST Act, 2017 the following types of items shall not be taken into consideration while computing the Annual Aggregate Turnover.

(a).Taxes if any charged under the head CGST, SGST, IGST.
(b).Value of inward supplies on which the tax is payable on Reverse Charge basis under Section 8(3) of the Central GST Act, 2017
(c).Value of inward supplies.
Examples:- A registered taxpayer in Delhi has following turnovers (i) Taxable turnover Rs 6 lakhs (ii) Inward supplies received under reverse charge Rs 5 lakh (iii) Exempted supplies Rs 8 lakh (iv) Exports Rs 2 lakh For computing aggregate turnover items (i), (iii), (iv) above would be added which in this case comes to Rs 16 lakhs. The taxpayer is eligible for threshold exemption. However, a dealer registered in Himachal Pradesh with the same turnover would not be eligible for threshold exemption as his aggregate turnover would exceed the threshold limit of Rs 10 lakh. Computation if one unit with same PAN exists in Special State while another unit exists in non-Special State ------ In such a case as soon the aggregate turnover at all India level exceeds Rs 10 lakh, the taxpayer in Special State will be out of exemption limit, notwithstanding the fact that his individual turnover in that State is below Rs 10 lakh or his total turnover across India is below Rs 20 lakhs. As soon as his turnover at all India level, including taxable clearness in Special State exceeds Rs 20 lakh, he would have to start paying tax in non-Special State also. Composition Scheme for payment of 1 %, 2% and 5% GST on annual turnover of goods and Restaurant Service upto Rs 75 lakh / Rs 50 lakh in a Financial Year With the advent of Goods and Service Tax w.e.f. 1st July 2017, the norms of business process have undergone sea change inasmuch as almost all business processes such as intimations, applications, replies to SCNs, returns are to be carried out outline on common portal. While large taxpayers are equipped with the resources and expertise required, small and tiny taxpayers are at disadvantage. Use of facilitation centers is going to incur extra cost for such taxpayers. In view of this, a composition scheme has been prescribed wherein many of the regular business process requirements have been given a go by. This scheme is applicable for goods only and not for services except for Restaurants supplying food and non-alcoholic beverage which is classifiable as service. The composition scheme shall save the small taxpayers from the hassles of compliance to the procedures of GST. Small taxpayers are not required to give HSN codes in their returns. Similarly, special dispensation has been made for job work to help the job workers in the GST regime.
Eligibility to Composition Scheme
  1. The Composition scheme is contained in Section 10 of the CGST / SGST Acts. For Union Territories, provisions contained in CGST Act are applicable. As per Section 10(2), the following categories of persons are eligible for composition scheme.
    1. When he is not engaged in the supply of services other than supplies referred to in clause (b) of paragraph 6 of schedule II; i.e. Restaurants supplying food and non-alcoholic beverage.
    2. When he is not engaged in making any supply of goods which are not leviable to tax under this Act;
    3. When he is not engaged in making any inter-State outward supplies of goods.
    4. When he is not engaged in making any supply of goods through an electronic commerce operator who is required to collect tax at source under section 52; and
    5. When he is not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council.
  2. However, where more than one registered persons are having the same Income Tax Permanent Account Number the registered person shall not be eligible to opt for the scheme under sub-section (1) of Section 10 unless all such registered persons opt to pay tax under that provision.
  3. as per Notification No.8/2017-C.T., dated 27-6-2017, the Composition scheme is not available to manufacturers of
    1. Ice cream and other edible ice, whether or not containing cocoa, Tariff item No. 2105 00 00;
    2. Pan Masala, Tariff Item No. 2106 90 20; and Tobacco and manufactured tobacco substitutes.
Threshold limit for applicability of Composition Scheme
  1. Composition is an alternative method of levy of tax for taxpayers whose yearly aggregate turnover of goods in the preceding financial year did not exceed Rs 75 lakh to pay composition tax at fixed rates subject to conditions and restrictions. This limit of Rs 75 lakh can be extended up to Rs one crore on the recommendation of Council. However, as per Notification No. 8/2017-C.T., dated 27-6-2017, for Special Category States viz. Arunachal Pradesh, Assam, Mizoram, Manipur, Meghalaya, Sikkim, Nagaland, Tripura and Himachal Pradesh, this limit is Rs 50 lakh. However, for the State of Uttarakhand this limit has been retained at Rs 75 lakh. Threshold limit for Jammu and Kashmir is yet to be decided.
  2. However, as and when the turnover of a person exceeds the threshold limit of Rs 75 lakhs or Rs 50 lakhs in a financial year, he shall not thereafter be eligible for the benefit of composition scheme on subsequent supplies.
  3. Furthermore, the amount of Central Tax, Sales Tax, Union Territory Tax and Cess are not includable in threshold limit Rs 75 lakhs / 50 lakhs.
Rate of tax for the composition levy

The Notification No.8/2017-C.T., dated 27-6-2017, fixed composition rates for CGST. Chart below gives details of the CGST and SGST rates as applicable under the Composition Scheme.

S.No Category of registered person Rate of tax
1 Manufacturers, other than manufacturers of such goods as may be notified by the Government Two percent. (one percent CGST + one percent SGST)
2 Suppliers making supplies referred to in clause (b) of paragraph 6 of Schedule II, i.e. Restaurant Sector 5 percent (Two and half percent. CGST + Two and half percent SGST)
3 Any other supplier (i.e., trader) eligible for composition levy 1 % (0.5% CGST + 0.5 % SGST)

The above rates under CGST Act, and same rate would be applicable in the other SGST / UTGST Act also. So, effectively, the composition rates (combined rate under CGST and SGST / UTGST) are 2%, 5% and for 1% for manufacturer, restaurant service and normal supplier (i.e., trader), respectively.
How to compute Aggregate Turnover of Rs 75 lakh / Rs 50 lakh--- The value of following supplies shall be taken into account while computing the limit of Rs 75 lakh / 50 lakh.

(a).Value of export goods or services or both
(b).Value of inter-State supplies of persons having same Permanent Account Number to be computed on all India basis
(c).Value of all taxable supplies excluding the value of inward supplies
(d).Value of exempted supplies
As per Section 2(6) of the CGST Act, 2017 the following type of items shall not be taken into consideration while computing the Annual Aggregate Turnover.
(a).Taxes if any charged under the head CGST, SGST, IGST
(b).Value of inward supplies in which the tax is payable on the Reverse Charge basis under Section 8(3)
(c).Value of inward supplies
Examples--- A registered taxpayer in Delhi has following turnovers
  1. Taxable turnover Rs 40 lakh
  2. Inward supplies received under reverse charge Rs 30 lakh
  3. Exempted supplies Rs 25 lakh
  4. Exports Rs 5 lakh
For computing aggregate turnover (i), (iii) and (iv) above would be added which in this case comes to Rs 70 lakh. The taxpayer is eligible to opt for composition levy provided he fulfills all conditions and restrictions. However, a dealer registered in Himachal Pradesh with same turnover would not be eligible for Composition scheme.
Conditions and restrictions for composition levy

the person exercising the option to pay tax under composition scheme has to comply with the following conditions / restrictions.

  1. Not engaged in the supply of services other than supplies referred to in clause (b) of paragraph 6 of Schedule II, i.e., supply of food and non-alcoholic drinks;
  2. Not engaged in making by him any supply of goods which are not leviable to tax under this Act;
  3. Not engaged in by him making any inter-State outward supplies of goods.
  4. Not engaged by him in making supply of goods through an electronic commerce operator who is required to collect tax at source;
  5. Not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council.
  6. In case of more than one registered persons having the same PAN, the registered person shall not be eligible to opt for the scheme unless all such registered persons opt to pay tax under composition scheme;
  7. The option availed shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds the prescribed limit;
  8. He shall not collect any tax from the recipient on supplies made by him (Section 10(4));
  9. He shall not be entitled to any credit of input tax [Section 10(4)];
  10. He is neither a casual taxable person nor a non-resident taxable person;
  11. The goods held in stock by people on the appointed day have not been purchased in the course of inter –State trade or commerce or imported from a place outside India or received from his branch situated outside the State or from his agent or principle outside the State;
  12. He shall pay tax under reverse charge on inward supply of goods or services or both;
  13. Instead of a tax invoice, he will issue a bill of supply containing prescribed particulars. He shall mention the words “ composition taxable person, not eligible to collect tax on supplies” at the top of the bill of supply issued by him; and
  14. He shall mention the words “composition taxable person” on every notice or signboard displayed at a prominent place at his principle place of business and at every additional place or places of business.
Procedure for opting for Composition Scheme
  1. An existing taxpayer who has been given a provisional number on migration has to file intimation in FORM GST CMP-01, A new taxpayer need to file said form but has to indicate his option in Part B of FORM GST REG-01 filed for getting registration.
  2. Where aforesaid intimation is filed after the appointed day, the registered person shall not collect any tax from the appointed day but shall issue bill of supply for supplies made after the said day.
  3. If composition scheme is to be adopted from beginning of next financial year then intimation in FORM GST CMP-02, has to be filed prior to the commencement of the financial year.
  4. In case of opting for composition scheme from the next financial year, a statement for reversal of ITC / Payment of tax on inputs, input contained in semi-finished goods or finished goods of stock in FORM GST ITC-3 has to be filed within sixty days from the commencement of the relevant financial year.
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Effective date for composition levy

The option to pay tax under composition scheme shall be effective from the appointed date beginning of the financial year. However, no fresh intimation is required every year.

Filing of return

A taxpayer opting for composition scheme is required to file a return on quarterly basis instead of three monthly returns required to be filed by other taxpayers. The form prescribed for quarterly return is GSTR-4. In addition, he has to file annual return in FORM GSTR 9A.

Transition from composition scheme to normal scheme

An intimation in form GST CMP-04 is to be filed within seven days of occurrence of event of his becoming intelligible / opting out from composition scheme. Thereafter, normal procedure on invoice, record keeping, returns, etc. will be applicable w.e.f. the date on which a taxpayer opts to be taxed as regular taxpayer. He will be allowed to take credit of input held in stock, or in-semi finished goods or in finished goods on the day immediately preceding such date. There are, however, some conditions to allow this credit. These are such inputs or goods are intended to be used for making taxable supplies under GST law; taxpayer was eligible for Cenvat Credit on such goods under the previous regime, however, could not claim it being under composition scheme; such goods are eligible for input tax credit under GST regime; the tax payer has legal evidence of input tax paid on such goods and such invoices were issued within a period of 12 months from GST applicable date.

Applicable penalties

The proper officer, after giving opportunity to applicant, can reject the application opting for this scheme. Further, if he has reason to believe that a composition dealer has wrongly availed the benefit under the composition scheme, then after taking resource to SCN and adjudication, he can direct such person to pay all the taxes which he would have paid under the normal scheme. Also, such person will be liable to pay a penalty determinable in terms of sections 73 and 74 of CGST Act with maximum penalty equivalent to the amount of tax payable.